Med-El Pays $495,000 to Settle Allegations it Paid Kickbacks to Military CI Surgeons

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MED-EL LogoThe Hearing Blog accepts no advertising so we can accurately report our findings without our judgment being clouded by financial considerations, such as retribution by advertisers other publications may face. While researching an article on selecting a cochlear implant program, we stumbled across a Department of Justice news item from February that Austrian hearing implant maker Med-El was busted for paying kickbacks to two San Diego Armed Forces ENT’s, paying $495,000 to settle the charges.1

According to the US Attorney’s office for the Western District of Washington, Med-El provided [the surgeons] free meals, overseas travel opportunities and honoraria requiring little to no actual work by the physicians. According to the settlement,

between 2010 and 2013, MED-EL USA embarked upon a deliberate campaign to increase the use of its products in Defense Department medical facilities. The government’s investigation revealed that MED-EL USA targeted the above-referenced Army and Navy ENTs and attempted to influence their choice of hearing devices by providing them free meals, overseas travel opportunities and honoraria requiring little to no actual work by the physicians. MED-EL USA sales to the military jumped from none to $400,000 during the period the two military physicians were the recipients of the company’s largesse.

What is intriguing about this case is that it appeared to start after Cochlear Americas was busted by DOJ in January 2007 for paying kickbacks to audiologists and surgeons through their unlawful “Partners Program,” paying $880,000 in June 2010 to settle Anti-Kickback Act and False Claims Act violations2 for Medicare and Medicaid fraud.

Back about 1980 car companies started to pay buyers cash rebates during slow periods: Although these were simply a harmless way to discount the product, Chrysler CEO Lee Iacocca raised a good point in their ads: “If their cars are so good, then why do they have to pay you to buy them?” Hearing care professionals should consider what this legendary CEO counseled.

Worth noting is that both Med-El and Cochlear are overseas companies that deal in some markets where kickbacks and bribes are part of the culture; but in the United States we have the strict Foreign Corrupt Practices Act3 as part of our criminal code, to which California-based Advanced Bionics must strictly adhere: Business practices which are routine to overseas corporations can — and often will — land the CEO in Federal prison.

References:

  1. Medical Device Maker Agrees to Pay $495,000 to Settle Allegations it Improperly Rewarded Military Physicians for Choosing Company Devices: US Department of Justice, US Attorney’s Office, Western District of Washington, February 13, 2015;
  2. United States Settles False Claims Act Allegations with Cochlear Americas for $880,000: US Department of Justice, June 9, 2010;
  3. Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq: Overview.

Text of USAO announcement on Med-El Anti-Kickback settelement:

Medical Device Maker Agrees to Pay $495,000 to Settle Allegations it Improperly Rewarded Military Physicians for Choosing Company Devices

Meals And Travel Provided To Doctors In Violation Of Anti-Kickback Statute
MED-EL USA, based in Durham, NC, has settled claims that it improperly sought to influence military physicians to surgically implant MED-EL hearing devices in patients with hearing loss, Acting United States Attorney Annette L. Hayes announced today. MED-EL USA, a subsidiary of Austrian-based MED-EL, manufactures and sells cochlear implants and other hearing devices. The company agreed to pay the U.S. Army and U.S. Navy a total of $494,951 to settle allegations that it improperly provided meals and trips to an Army and a Navy Ear, Nose and Throat (ENT) specialist. The physicians were stationed at Madigan Army Medical Center in Tacoma, Washington and at the San Diego Naval Medical Center in San Diego, California.

“Patients need to be confident that their physician is selecting the best and most appropriate medical devices for their medical conditions – not the device that will result in free travel and/or a free meal for their doctor,” said Acting United States Attorney Annette L. Hayes. “That is why the Anti-Kickback Statute and False Claims Act generally prohibit payments to physicians, in cash or in-kind, in the hopes of influencing their medical decision-making and inducing them to order particular procedures, treatments and/or medical devices. Enforcement of these laws is particularly important in the military context given our obligation to provide quality healthcare to our servicemen and women and their families.”

According to today’s settlement, between 2010 and 2013, MED-EL USA embarked upon a deliberate campaign to increase the use of its products in Defense Department medical facilities. The government’s investigation revealed that MED-EL USA targeted the above-referenced Army and Navy ENTs and attempted to influence their choice of hearing devices by providing them free meals, overseas travel opportunities and honoraria requiring little to no actual work by the physicians. MED-EL USA sales to the military jumped from none to $400,000 during the period the two military physicians were the recipients of the company’s largesse.

In resolving the allegations involved in today’s settlement, MED-EL USA admits to no wrongdoing. Further, the company has dismissed its former Chief Operating Officer and terminated its relationship with the external sales consultant who orchestrated the alleged improper payments scheme.

The case was investigated by the Seattle Office of the Defense Criminal Investigative Service and the Army Criminal Investigation Command, Major Procurement Fraud Unit.

The case was handled by Assistant United States Attorney Harold Malkin. Mr Malkin heads the Affirmative Civil Enforcement (ACE) Unit for the US Attorney’s Office.

Text of FCPA Overview

The Foreign Corrupt Practices Act of 1977, as amended, 15 U.S.C. §§ 78dd-1, et seq. (“FCPA”), was enacted for the purpose of making it unlawful for certain classes of persons and entities to make payments to foreign government officials to assist in obtaining or retaining business. Specifically, the anti-bribery provisions of the FCPA prohibit the willful use of the mails or any means of instrumentality of interstate commerce corruptly in furtherance of any offer, payment, promise to pay, or authorization of the payment of money or anything of value to any person, while knowing that all or a portion of such money or thing of value will be offered, given or promised, directly or indirectly, to a foreign official to influence the foreign official in his or her official capacity, induce the foreign official to do or omit to do an act in violation of his or her lawful duty, or to secure any improper advantage in order to assist in obtaining or retaining business for or with, or directing business to, any person.

Since 1977, the anti-bribery provisions of the FCPA have applied to all U.S. persons and certain foreign issuers of securities. With the enactment of certain amendments in 1998, the anti-bribery provisions of the FCPA now also apply to foreign firms and persons who cause, directly or through agents, an act in furtherance of such a corrupt payment to take place within the territory of the United States.

The FCPA also requires companies whose securities are listed in the United States to meet its accounting provisions. See 15 U.S.C. § 78m. These accounting provisions, which were designed to operate in tandem with the anti-bribery provisions of the FCPA, require corporations covered by the provisions to (a) make and keep books and records that accurately and fairly reflect the transactions of the corporation and (b) devise and maintain an adequate system of internal accounting controls.

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About the author

Dan Schwartz

Electrical Engineer, via Georgia Tech

2 Comments

  1. MachineGhost
    May 17, 2015 at 7:41 pm

    They must be easy targets because Big Pharma does this all the time, both overtly and covertly.


    • Dan Schwartz
      May 18, 2015 at 8:54 am

      The sad thing is that Med-El actually has a decent CI — Not as good as AB, but certainly better than the Cochlear Nucleus.


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